JournaldrillSale of equipment (gain or loss)
To record the sale of equipment, debit Cash for the proceeds, debit Accumulated Depreciation to remove the depreciation taken, credit Equipment for its original cost, and record the difference as Gain on Sale (credit) or Loss on Sale (debit). Gain or loss equals proceeds minus book value (cost minus accumulated depreciation).
Syntax
Dr Cash (proceeds), Dr Accumulated Depreciation / Cr Equipment (cost); plug: Cr Gain on Sale or Dr Loss on Sale| Part | What it is |
|---|---|
Book value | Cost minus accumulated depreciation at the date of sale. |
Gain on Sale of Equipment | Other income, credited when proceeds exceed book value. |
Loss on Sale of Equipment | Other expense, debited when proceeds are below book value. |
Depreciation to date of sale | Record depreciation up to the sale date before computing book value. |
Examples
Dr Cash 12,000, Dr Accumulated Depreciation 30,000 / Cr Equipment 40,000, Cr Gain on Sale of Equipment 2,000Result: Gain 2,000: proceeds 12,000 - book value 10,000
Equipment cost 40,000, accumulated depreciation 30,000, sold for 12,000.
Dr Cash 7,000, Dr Accumulated Depreciation 30,000, Dr Loss on Sale of Equipment 3,000 / Cr Equipment 40,000Result: Loss 3,000: proceeds 7,000 - book value 10,000
Same asset sold for 7,000.
Dr Accumulated Depreciation 30,000, Dr Loss on Disposal of Equipment 10,000 / Cr Equipment 40,000Result: Loss equals the remaining book value
Asset scrapped with no proceeds.
Common mistakes
- Crediting Equipment for the book value: the asset is removed at its full original cost and accumulated depreciation is removed separately.
- Skipping depreciation for the part-year before the sale: update depreciation to the sale date first, or the gain or loss will be wrong.
- Reporting the whole sale price as a gain: only the excess of proceeds over book value is a gain.
Practice Sale of equipment (gain or loss)
These drills check your answer on live data, free, no account needed.
- Selling equipment at a gainBrightwell Dairy sells a delivery cooler for $24,000 cash. The cooler cost $72,000, and accumulated depreciation, updated to the date of sale, is $51,500.
- Selling equipment at a lossElmwood Fitness sells a set of rowing machines for $9,100 cash. The machines cost $38,000, and accumulated depreciation, updated to the date of sale, is $26,400.
Questions
How do you calculate gain or loss on sale of equipment?
Proceeds minus book value, where book value is cost minus accumulated depreciation. A positive result is a gain, negative a loss.
Where does gain on sale of equipment go on the income statement?
Under other income and expenses, below operating income, because it is not part of normal operations.
Related
- Depreciation entryHow to record depreciation: Dr Depreciation Expense, Cr Accumulated Depreciation. Straight-line formula, monthly and annual examples and book value.
- Inventory write-downHow to write inventory down when net realizable value falls below cost: Dr Cost of Goods Sold or Loss on Write-Down, Cr Inventory. Shrinkage included.
- Cash saleHow to record a cash sale: debit Cash, credit Sales or Service Revenue. For merchandise under a perpetual system add Dr Cost of Goods Sold, Cr Inventory.
- Purchase on accountHow to record buying on credit: debit the asset or expense received and credit Accounts Payable. Examples for supplies, equipment and merchandise.